Questionable Socialist Stylings: Ecuador's Correa

On 27 October 2009, Ecuadorean President Rafael Correa came to speak at the LSE. Brandishing the classic repertoire of Latin American firebrands, he denounced American imperialism, the Washington Consensus, neoliberalism, neoclassical economics, free trade, "kicking away the ladder," and so forth. While I do not have particular issues with several of these denouncements--I've made some myself--it is worth comparing how rhetoric compares with reality. The text of his speech is available online, as are a podcast and video. Still, I kind of wonder why one needs a PhD in Economics from a fine institution like the University of Illinois at Urbana-Champaign to recycle this masters-level anti-globalization repertoire. Yet, what's passable for a master's-level essay is certainly not what one expects from somebody who should know better.

More importantly, Correa's bog-standard class warfare stylings seems--in classic populismo fashion--to have backfired on him. If you will remember, one of the first things Correa did upon assuming office was default on governments he deemed as not being legitimate debts. While I too would like to try this trick sometime if I had country of my own, the financial community is apparently none too impressed. As a consequence of this action, Ecuador has been locked out of international capital markets. Like in Venezuela, populismo has not only trumped economics--something Correa should know about--but common sense: he who burns his bridges had better be a good swimmer. Now, faced with a large revenue shortfall in light of declining oil prices--Ecuador is the second largest oil exporter in the region after Venezuela--the country has sought the comfort of, er, the Washington-based lender the Inter-American Development Bank whose principal funder is of course the United States:

Ecuador may cut government spending as it struggles to cover a $4.2 billion budget shortfall after a debt default shut it out of credit markets, Fitch Ratings said. President Rafael Correa could slash planned investments aimed at boosting oil production after halting payments in December 2008 on $510 million of bonds and in March on $2.7 billion of notes, Fitch analyst Theresa Paiz said yesterday in a telephone interview from New York. “There could be a sharper adjustment in the budget and cuts to capital expenditure,” Paiz said. “External borrowing is pretty much off the table.”

Correa defaulted on Ecuador’s 2012 and 2030 global bonds, saying the securities were “illegitimate” and “illegal.” Ecuador, which depends on oil exports for about a quarter of its revenue, may post economic growth of 1.5 percent this year after gross domestic product shrank 2.3 percent in 2009, according to Fitch. Ecuador may be able to narrow its budget shortfall if oil prices continue to rise and the country receives financing from multilateral lenders, Paiz said. Crude oil prices have almost doubled to $79.30 a barrel from a year ago as a global economic recovery boosts energy consumption.

Corporacion Andina de Fomento, a Caracas-based a multilateral lending institution, approved a $200 million loan for Ecuador last week, and the Andean nation may receive $350 million from the Inter-American Development Bank, Finance Minister Maria Elsa Viteri said Feb. 12 in a statement on the president’s Web site.

Correa has also tapped Ecuador’s state-run Social Security Institute to fund projects ranging from oil exploration in the Amazon to hospital building, according to statements on the president’s Web site.

The digital webpage of this government trumpeting Correa's "citizen's revolution" confirms these details--Ecuador's ambassador to Washington has [shhh] gone to the Yanqui capital with begging bowl in hand. Some were hopeful that Correa could be another Lula instead of another Hugo, but the latter scenario seems to have panned out. Correa has even raided Social Security funds to pay for pet projects, so Ecuadoreans pinning their hopes on future disbursements have further reason to worry as external sources of funding dry up.

You show those neoliberal Yanks, Rafael Correa...by borrowing from Washington? Like Chavez, Correa's revolucion is fuelled almost solely on high oil prices which he probably should be wishing are on the rise again. You certainly don't need a PhD in Economics to figure out that, after you kick your creditors in the balls, external funding won't be forthcoming. Colour me unimpressed.